Comments from oil company executives expose how badly Coalition failed to protect Guyanese interests
Recent comments by oil company executives expose how shameful a situation Guyana has found itself it because of the incompetence of the APNU+AFC Coalition, according to Opposition Leader, Bharrat Jagdeo, during his Thursday (November 7, 2019) news conference.
Recently, executives from Hess Corporation – a partner in the Stabroek Block where ExxonMobil has made some 14 oil finds to date – talked up the levels of returns they would make on the re-negotiated ExxonMobil agreement, which was done in 2016. During the company’s third-quarter earnings call, the Chief Financial Officer (CFO), John Rielly, boasted that investors or shareholders have nothing to worry about.
He said, “The way that contract works, after the cost recovery, the profit oil, they split for the government and the working interest owners. And the government, out of its profit oil, pays for the taxes of the working interest owners. So what that requires us to do is record a tax… whatever taxes show up there do not affect the bottom line cash flow from our Guyana production.” The company’s Chief Executive Officer (CEO), John Hess, also boasted that the Stabroek Block’s Liza field offers high financial returns and more rapid cash paybacks since it carries the lowest development costs of all the major global offshore projects.
Hess said, “In 2022 and beyond, obviously, we will be a significant free cash flow generator. We see that free cash flow compounding over time and the first call will be continuing to invest in our high-return projects… once we start to generate free cash flow on a recurring basis, our top priority will be starting to return capital to our shareholders on a consistent basis and the first priority there will be increasing the dividend.”
While making clear that the comments from the oil company executives were “highly insensitive”, the Opposition Leader noted that their focus is on the return on their investment. “This makes it clear that the APNU is not looking out for the interest of our people,” he said.
TOTAL TAKE BELOW AVERAGE
Guyana’s total take from the oil contracts that have been signed by the caretaker APNU+AFC Coalition is well below the average other oil producing countries have benefited from, according to Jagdeo in September 2019. He had said, “When you look at a model contract, it has to look at what is the total take that comes to Guyana. In some countries, there are frontier advantages – the first people who find oil should benefit from some advantages – and in other countries the average take is about 60 per cent, but in Guyana it is 52 per cent, so it is lower.”
He had explained that Guyana is at the cusp of transformation, but not everything is automatic. He said, “This bunch we have in government is compromised. They cannot renegotiate anything… half of the time they are defending the issues.
“…we have isolated one fact that is clear– the government does not look out for our interests. If we thought the Exxon agreement was bad – the blanket tax waivers, the absence of ring fencing and the low royalty – then the Tullow agreement, signed by Trotman, was even worse, where it is zero royalty in that contract. What is even more worrying is that Trotman say he was following instructions. Whose instructions was he following if not that of the President?”
OPPORTUNITIES SQUANDERED
The Opposition Leader has said too that the Coalition has presided over a situation where opportunities in the oil and gas sector were squandered. He said, “I have seen many countries being where we are today – that is at a place with a transformational opportunity with a massive oil find – but they have squandered that opportunity. We must not take it for granted that because we have found oil, we are going to be prosperous tomorrow or in the future.
We have seen the experience around the world. An oil find can destroy other industries because of what we know as the Dutch Disease. “Critical to the future will be how we manage the resources. They have to be managed properly, it cannot be squandered or stolen, and Guyanese must benefit primarily – the bulk of the benefit must flow to our people. And in all three of those areas we have found the Government lacking – reflected in the engagements with the oil companies, in the lack of a regulatory infrastructure and the experience we have had with the US$18M signing bonus. In those three separate acts, we have isolated one fact – the government does not look out for our interests.”
Jagdeo has said that once the PPP/C wins office, one of the first priorities will be to address the failures in the oil sector – to look everything including: a local content policy, a regulatory framework, a Sovereign Wealth Fund, auctioning the remaining oil blocks, etc. The entire architecture for proper and transparent management of the oil resources, he assured, will be completed in six months